Court of Appeal, Malaysia
Tengku Maimun JCA, Nallini Pathmanathan JCA, Zabariah Yusof JCA
11 July 2018
KEYWORDS
House bill of lading – Non-delivery – Misdelivery – Application of Hague Rules Art. III(6) one-year time limit to non-delivery or misdelivery cases – Assessment of damages by fair market value of cargo at destination port at time of breach – Alternative basis of assessment by cost of cargo to holder of bill
FACTS
There were cargoes of timber on board vessels from Port Klang to Shanghai. The cargoes were covered by 25 house bills of lading issued by a Malaysian freight forwarder – a non vehicle owning carrier (NVOC). The bills named the original supplier in Malaysia as the ‘shipper’ and one Jiangsu Sopo as the ‘notify party’. Seemingly, the bills were issued to order, meaning to order of the shipper, who indorsed them in blank, so that the bills became bearer bills. Freight was paid.
A Singapore trader purchased the cargoes for about USD13 million and fully paid for them, and obtained the 25 house bills. The Singapore trader entered into an agreement to on-sell the cargoes to a Shanghai sub-buyer. However, problems arose over payment by the Shanghai sub-buyer.
While negotiation as to payment between the Singapore trader and the Shanghai sub-buyer dragged time, the vessels arrived and cargoes were discharged into warehouse. The negotiation, and thus the sale, failed. The bills were not parted with and were with the Singapore trader.
The Singapore trader contacted the Malaysian freight forwarder, informing the latter that the former was the holder of the bills and asked for the agent’s details to arrange collection of the cargoes. The freight forwarder either did not respond or merely responded asking the Singapore trader to contact the ‘notify party’ namely Jiangsu Sopo. Then the Singapore trader demanded delivery, again no avail.
Then, the Singapore trader sued the freight forwarder for non-delivery. By the time, the suit was filed, it was about a month more than a year after discharge, at least in respect of some of the bills. It appeared that by then the cargoes were misdelivered, as far as the house bills were concerned, to some person without presentation of the house bills.
In background to the house bills, as it will usually be, the shipowner had issued ocean bills which were held by the freight forwarder. The ocean bills named the same shipper in the house bills as the shipper. Ordinarily, when the house bills are presented to the freight forwarder, it will exchange them for the ocean bills so that the presenter can present the ocean bills to the shipowner in order to collect the cargo from the shipowner. In this case, the freight forwarder failed to do so.
The freight forwarder argued that the holder of the bills should have contacted the ‘notify party’ about the collection, that the cargoes were incurring warehouse charges being uncollected for long and that the action was time barred as it was brought more than one year after discharge, seemingly in respect of some of the bills. The Hague Rules Art. III(6) provides for one-year time limit from the date of delivery or the date when the cargo should have been delivered to bring action. The Rules are made part of Malaysian law by s. 2 of the Carriage of Goods by Sea Act 1950.
The High Court dismissed the claim, hence the appeal by the Singapore trader to the Court of Appeal.
HELD (BY COURT OF APPEAL – UNANIMOUSLY):
As to obligation to deliver against the bills:
a) The house bills are the documents of title to the goods.
b) Delivery may only be made against presentation of the bills.
c) Failure to accordingly deliver is a fundamental breach.
d) Non-delivery will find liability in contract and tort of conversion.
e) If the carrier suffers storage charges by reason of delay in collection of the goods by the holder of the bills, the carrier may claim those charges from the holder of the bills, but that is not an excuse for non-delivery or misdelivery.
f) The argument that the holder of the bill should have contacted the notify party is devoid of any merit.
As to the one-year time limit argument:
g) The one-year time limit does not apply to non-delivery or misdelivery cases for three reasons, below.
h) First, the time in Art. III(6) starts count from the date of ‘delivery’. ‘Delivery’ here means delivery to the right person, that his holder of the bill. As the cargoes were never delivered to the right person in this case, the time did not start count.
i) Second, non-delivery or misdelivery, after discharge, is not subject to the one-year time limit, as the Hague Rules is about events happening from the time of loading to the time of discharge. The decision of the Malaysian Federal Court in Peninsular Peninsular & Oriental Steam Navigation Co Ltd & Ors V Rambler Cycle Co Ltd [1964] 30 MLJ 443 was followed.
j) Third, the freight forwarder was counting the time from ‘discharge’ from the ship, which is different from ‘delivery’ and was wrong.
As to the quantum of damages:
k) The holder of the bills, by ordinary measure of damages, is entitled to fair market value of the cargoes at the destination port at the date of the breach (i.e. the date when the goods should have been delivered).
l) The amount paid by the Singapore trader for the cargoes to its suppliers, which it proved to be about USD13 million, was acceptable as an alternative method of assessment, being the actual loss.
m) The customs declaration showing the value to be about USD2 million was not an acceptable evidence of the value in this case.
Disposition:
n) Appeal allowed. Freight forwarder is liable. The quantum is the price for which the Singapore trader purchased the goods, namely USD13,591,622.65.
o) Freight forwarder to pay costs here and below in the sum of RM70,000.
OBSERVATION:
1. Is a house bill issued by a non vehicle owning carrier (NVOC) a document of title to or a document conferring constructive possession of ‘the goods’?
It is a most settled law that delivery must only be made against the bill [Chabbra Corporation Pte. Ltd. v Jag Shakti (Owners), The Jag Shakti [1986] 1 MLJ 197, [1986] AC 337, [1986] 1 All ER 480, [1986] 2 WLR 87, [1987] LRC (Comm) 228, [1986] 1 Lloyd’s Rep 1, 130 Sol Jo 51, [1986] LS Gaz R 45 (PC on appeal from Singapore CA)]. When the freight forwarder did not so deliver, it was liable for non-delivery. However, whether house bills are ‘documents of title’ to the goods is something arguable. In The Maheno [1977] 1 Lloyd’s Rep 81], the New Zealand Supreme Court did not consider a through bill of lading issued by a non-vehicle owning carrier (NVOC) – a freight forwarder – to be a document of title.
UCP [Uniform Customs and Practice for Documentary Credits] 600 in Art. 20(c)(i) recognises through bill of lading as a good tender for payment under letters of credit. This will happen where a carrier issues a bill (called a ‘through’ bill) under which the carriage will be completed with transshipments. For instance, the carrier will perform the first leg of the voyage, and the second leg (upon transshipment) will be performed by another carrier. As far as the second leg is concerned, the original carrier is not the shipowner. There will be only one through bill as far as the shipper is concerned that will cover the entire voyage including all transshipment. The carrier will be standing in the position of a NVOC as far as the legs not performed by it are concerned. The Art. 20(c)(i) reads as follows:
A bill of lading may indicate that the goods will or may be transshipped provided that the entire carriage is covered by one and the same bill of lading.
This will afford an argument that a bill issued by a NVOC has commercially been recognised now as being transferable or negotiable. However, that does not confer on such bill the status of document of title to the goods or of a document giving the construction possession. The bill, at the maximum, is merely a transferable or negotiable contract of carriage. This is because, there will be another bill of lading issued by the shipowner to the NVOC that will in fact represent the cargo. First, it will not be logical that there are two documents of title or documents of constructive possession for the same cargo. Second, the cargo is in the control of the shipowner and not the NVOC. Third, the duty of the shipowner will be to deliver the cargo only to the person presenting the bill issued by it, and it will be inconsistent to say that any other person holding any other bill has the right of possession of the cargo. Hence, only a document issued by the shipowner can give constructive possession or operate as a document of title to the goods.
The best that the NVOC bill can do is to i) confer a right of action on the holder of the bill against the NVOC; and ii) potentially operate as a document giving constructive possession of the ocean bill of lading in the hands of the NVOC. This puts the holder of a house bill, as opposed to an ocean bill, in a disadvantageous position in addition to the limitation that the option of arresting the ship [by in rem action – see s. 21 of the Senior Courts Act 1981 (UK), which is applicable in Malaysia by virtue of s. 24(b) of the Courts of Judicature Act 1964; in Singapore, a similar provision to the s. 21 is in s. 4 of the High Court (Admiralty Jurisdiction) Act] is not available to it as the issuer of the house bill is not the owner or disponent owner [Demise charterer, also called ‘bareboat charterer’] of the ship.
In support of the above proposition, the New Zealand Supreme Court in The Maheno [1977] 1 Lloyd’s Rep 81 did not consider a through bill issued by a NVOC to be a document of title.
2. Is it a right practice for the shipowner to issue an ocean bill naming the house bill shipper as the shipper?
In this case, it seems that the shipowner issued an ocean bill naming the shipper in the house bill as the shipper for the ocean bill. This appears not to be right practice. The freight forwarder, having issued its own house bill, is the one who made the ‘contract’ with the shipowner, hence the shipper as far as the shipowner was concerned. It would be hard to say that the freight forwarder contracted with the shipowner as the agent of the actual shipper, because the the freight forwarder issued its own house bill to the actual shipper, that would have been likely at different rate of freight. The freight forwarder will in fact be the principal vis-a-vis both the actual shipper and the shipowner. Ocean Projects Inc v Ultratech Pte Ltd [1994] 2 SLR 369 (Singapore CA) will support this proposition, where the Singapore Court of Appeal held that when a freight forwarder issued its own bill to the actual shipper, the freight forwarder was the principle vis-a-vis both the carrier actual shipper and the shipowner. Accordingly, the right practice would have been for the shipowner to issue the ocean bill naming the freight forwarder as the shipper.
3. Is non-delivery, as opposed to misdelivery, a tort of ‘conversion’?
It is no doubt that a carrier, including a NVOC, is liable for failing to deliver against presentation of the bill issued by it [Chabbra Corporation Pte. Ltd. v Jag Shakti (Owners), The Jag Shakti, supra] whether it is a case of mere non-delivery (such as where the goods are lost) or misdelivery (where the goods are delivered to a wrong person i.e. a person not holding the bill).
At common law, the tort of conversion [also called ‘trover’] is committed in the case of the latter (misdelivery), but not in the case of the former (mere non-delivery not coupled with misdelivery). Conversion has not been an easy thing to define or understand [in Hiort v London and North Western Railway Co 4 Ex D 188, 194, Bramwell LJ said that he had frequently stated that he never understood with precision what a conversion was]. Salmond on Torts [(1907), p 284] defines it as “[t]he wrong of conversion consists in any act of wilful interference with a chattel, done without lawful justification, whereby any person entitled thereto is deprived of the use and possession of it.” Clerk & Lindsell [22nd edn., UK, Sweet & Maxwell, 2017 ~ 17-17] defines conversion as “an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it”. This was accepted by the English Court of Appeal in Kuwait Airways Corp v Iraqi Airways Co (Nos 4 & 5) [[2002] UKHL 19; [2002] 2 A.C. 883]. as accurately summarising the tort of conversion. In this case, Lord Nicholls enunciated the test for ‘conversion’ as:
First, the defendant’s conduct was inconsistent with the rights of the owner (or other person entitled to possession).
Second, the conduct was deliberate, not accidental.
Third, the conduct was so extensive an encroachment on the rights of the owner as to exclude him from use and possession of the goods.
Conversion is a tort of strict liability [Kuwait Airways Corpn v Iraqi Airways Co (Nos 4 and 5) [2001] 3 W.L.R. 1117; [2001] 1 Lloyd’s Rep. 161 (English CA)] ‘in which the moral concept of fault in the sense of either knowledge by the doer of an act that it is likely to cause injury, loss or damage to another, or lack of reasonable care to avoid causing injury, loss or damage to another, plays no part’ [speech of Diplock LJ in Marfani & Co Ltd v Midland Bank Ltd [1968] 1 WLR 956 at pp. 970-971 (English CA)].
More directly about loss of goods at common law, Winfield & Jolowicz on Tort [19th edn., UK, Sweet & Maxwell, 2014 ~ 18-102] says when defining conversion “at common law there must be some deliberate act depriving the claimant of his rights: if this element was lacking there was no conversion. Thus if a bailee negligently allowed goods in his charge to be destroyed the claimant’s loss is just the same as if the bailee had wrongfully sold them to a third party but there was no conversion.”
Similarly, Clerk & Lindsell [22nd edn., UK, Sweet & Maxwell, 2017 ~ 17-21] says “[a]t common law there could be no conversion where there was no voluntary act. Therefore if a bailee in breach of his duty to his bailor lost goods or allowed them to be destroyed, he could not be sued for conversion, although he might be liable in contract, negligence, detinue or breach of bailment.”.
Some of the categories Clerk & Lindsell [22nd edn., UK, Sweet & Maxwell, 2017 ~ 17-08] give of conversion are:
(a)when property is wrongfully taken or received by someone not entitled to do so;
(b)when it is wrongfully parted with;
(c)when it is lost by a bailee in breach of his duty to the bailor (not found in common law, but made part of ‘conversion’ in the UK[ England, Wales and Northern Ireland, but not Scotland.] only by s.2(2) of the Torts (Interference with Goods) Act 1977 – for Malaysia, only the common law will apply in this context by virtue of s. 3 of the Civil Law Act 1956);
(d)when it is wrongfully sold, even without delivery, so as to pass good title to the buyer;
(e)when it is wrongfully retained;
(f)when it is wrongfully misused or destroyed; and
(g)when the defendant, without physically interfering with it, wrongfully denies access to it to the claimant.
Accordingly, in Malaysia, a mere non-delivery, not coupled with misdelivery, will not be conversion. Hence, a suit for non-delivery has to be taken in contract based on the bill of lading, in bailment or negligence (tort). A bailment action would be possible when the goods had been lost by negligence of the bailee, and the burden of proofing that he was not negligent is on the bailee once the bailor proves that the goods had been delivered to the bailee in a certain condition [Port Swettenham Authority v The Borneo Co (Malaysia) Sdn Bhd [1975] 2 MLJ 80 (Malaysian Federal Court)]. If the action is taken in negligence, then the burden of proving that the defendant lost the goods by his negligence is on the plaintiff or claimant.
As far as England, Wales and N. Ireland is concerned, in addition to the availability of action in contract, bailment and negligence, an action in conversion will be available for a mere non-delivery by virtue of s.2(2) of the Torts (Interference with Goods) Act 1977, provided that the defendant is a bailee, eg. shipowner. Whether a NVOC like freight forwarder, who does not take physical possession of the goods, is a bailee is not so settled. In Spectra International plc v Hayesoak Ltd [1997] 1 Lloyd’s Rep 153, an English County Court held that a freight forwarder who issued a combined transport bill of lading was a bailee, although it did not take physical possession of the goods, and it was sufficient that goods were at its disposal as freight forwarder to arrange warehousing, transportation and delivery. Despite that, the point can be open to argument.
4. Is Hague Rules Art. III(6) one-year time limit applicable in Malaysia?
The answer is ‘Yes’. Sec. 2 of the Carriage of Goods by Sea Act 1950 makes the Hague Rules part of the Malaysian law.
The s. 2 reads as follows:
Subject to this Act, the [Hague] Rules set out in the First Schedule (hereinafter referred to as “the Rules”) shall have effect in relation to and in connection with the carriage of goods by sea in ships carrying goods from any port in Malaysia to any other port whether in or outside Malaysia.
The Art. III(6), in para 5, reads as follows:
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.
5. What does ‘delivery’ in the Hague Rules Art. III(6) mean?
It is no doubt that delivery and discharge are two different things. The time limit in the Art. III(6) counts from delivery and not discharge. Although it is common for delivery to be after delivery, there are instances where delivery and discharge happen together, such as in ‘free in and free out’ (FIFO) arrangement, where the consignee does the discharge from the ship and together with that takes delivery.
The word ‘delivery’ in the Art. III(6), by itself, cannot mean delivery to the right person, i.e the lawful holder of the bill, particularly when read in the full context whereby the time starts count from the date of delivery ‘or the date when the goods should have been delivered’.
The correct approach will be just that taken by the Malaysian Federal Court in Peninsular & Oriental Steam Navigation Co Ltd & Ors V Rambler Cycle Co Ltd, namely, the entire Rules are about obligations from the time of loading to the time of discharge (Art. III(2)). Hence, the time limit in the Art. III(6) does not relate to delivery when that happens or is to happen after discharge. The same principle will also apply to damage to goods after discharge but before delivery, hence the liability limit in Art. IV(5) will not apply to such damage.
Peninsular & Oriental Steam Navigation has been followed by the Malaysian Federal Court in another case, namely The Lung Yung & Thai Yung, Owners & Ors v Sadit Timber Sdn Bhd & Ors [1984] 1 MLJ 29. The principle reinforced by these case will find support in the English High Court case The Alhani [2018] EWHC 1945 (Comm).
The said Art. III(2) reads as follows:
Subject to the provisions of Article 6, under every contract of carriage of goods by sea the carrier, in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the responsibilities and liabilities, and entitled to the rights and immunities hereinafter set forth.
The Art. IV(5), in para 1, reads as follows:
Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding 100 pounds sterling per package or unit, or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.
6. Will the position be the same under the Hague-Visby Rules?
The answer is ‘Yes’. The Art. II in the Hague-Visby Rules is identical to the one in the Hague Rules. The Art. III(6) is materially the same. Accordingly, the position in relation to time limit in case of non-delivery or misdelivery is the same.
The Art. IV(5) in the Hague and Hague-Visby Rules is quite similar save that the scheme of quantum of liability limit is different and the words ‘in any event’ has been added in the Hague-Visby Rules Art. IV(5) to read “Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with good …”. These additional words have attracted some argument that the liability limitation regime in the Hague-Visby Rules may apply even when the goods are damaged after discharge but before delivery. These addition words have been interpreted widely in Daewoo Heavy Industries Ltd v Klipriver Shipping Ltd, The Kapitan Petko Voivoda [2003] EWCA Civ 451; [2003] 1 All ER (Comm) 801; [2003] 2 Lloyd’s Rep 1; (2003) Times, 17 April; [2003] All ER (D) 46 (Apr) (English CA), and in Parker Distributors (Singapore) Pte Ltd v A/S D/S Svenborg & Anor [1982-1983] 1 SLR 153 (Singapore CA), however not in the context of liability limitation. Despite that, it is opined that the post-discharge damage cannot be subject to the liability limitation in the Hague-Visby Rules Art. IV(5), following the ratio in Peninsular & Oriental Steam Navigation.
Hague-Visby Rules (as last amended with SDR protocol in 1979) apply in the UK, by virtue of s. 1 of the Carriage of Goods by Sea Act 1971. Hague-Visby Rules (as originally made in 1968 without SDR protocol) apply in Singapore, by virtue of s. 3 of the Carriage of Goods by Sea Act. Singapore has not adopted the SDR protocol, but has made its own scheme of quantum of liability limit by Carriage of Goods by Sea (Singapore Currency Equivalents) Order.
7. Is it correct to award damages on the alternative method of assessment of damages based on cost of the goods to the holder of the bill, in alternative to value at the destination port at time of breach?
Damages are to be assessed by the market value of the goods at the time and place of delivery or when and where delivery should have been made (supposed delivery) [Chabbra Corporation Pte. Ltd. v Jag Shakti (Owners), The Jag Shakti, supra]
However, where such value is not readily available or is difficult to assess, it may be acceptable to take the cost of the goods to the holder of the bill as evidence of the market value, unless market has been proved to have fluctuated between the time of purchase by the holder of the bill and the time of delivery (or supposed delivery) or the holder has been shown to have purchased the goods at odd price. This proposition will find favour with The Jag Shakti, where the holder of the bill, who was a financier in that case, was awarded the amount of finance that it had advanced as the damages in the absence of proof of the value of goods at the destination port at the time of breach. The Privy Council there held that the burden to prove of the value was on the holder of the bill, and as it failed to discharge that burden, the only award that can be ‘justified’ was one for the amount of finance it had expended. In that case, the holder of the bill was claiming a lot more than that which the shipowner contested, but the shipowner did not take a challenge to say that the amount of finance was higher than the market value of the goods at the relevant place and time, which it would have been open for the shipowner to do so if it wanted to.
Accordingly, although the result arrived by the court as to quantum stands well in law, the better approach in precision would have been to call the cost of the goods to the holder of the bill as ‘evidence’ of value of the goods at the relevant place and time rather than as ‘alternative’ method of assessment, although the two practically mean the same thing. It will be open to the carrier to challenge any such alternative evidence such as by tendering better evidence of more precise value of the goods at the relevant place and time, if it wishes to do so.
8. Overview of the result arrived by the court
The result, both in terms of liability and quantum, arrived by the court is very well in line with the law.
Overview by ARUN KASI